Yuan softens ahead of US inflation, China manufacturing data

SHANGHAI: China’s yuan inched lower against the dollar on Monday, not far from a key threshold, as markets await a string of U.S. economic data that could delay prospects for a Federal Reserve rate cut.

Markets are paying close attention to U.S. core personal consumption expenditures price index - the Fed’s preferred measure of inflation - due later this week for more clues on the trajectory of monetary policy in the world’s largest economy, traders said.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1080 per dollar, 16 pips weaker than the previous fix of 7.1064.

The central bank continued its months-long practice of setting the official guidance at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable.

Monday’s midpoint was 918 pips firmer than a Reuters estimate of 7.1998.

“One of the PBOC’s priorities is FX stability, as shown by the steady USD/CNY fixing pattern since the end of November last year,” said Paul Mackel, global head of FX research at HSBC.

Yuan eases as China’s new home prices fall

In the spot market, the onshore yuan opened at 7.1949 per dollar and was changing hands at 7.1980 at midday, 27 pips weaker than the previous late session close.

The spot rate was not far from the psychologically critical 7.2 per dollar.

“As the Shanghai Composite index rebounded to above 3,000 points, it may be worth monitoring changes to market risk appetite this week,” said Li Liuyang, FX analyst at China International Capital Corporation (CICC).

Market sentiment has been affected by volatility in shares listed on China’s mainland in the past month. The benchmark Shanghai Composite index has recouped all of the losses it booked earlier this year, largely helped by government measures to spur economic growth and boost investor confidence.

Traders said another focus this week will be the release of February manufacturing activity data due on Friday, when investors will gauge the health of the broad economy.

By midday, the global dollar index rose to 104.007 from the previous close of 103.936, while the offshore yuan was trading at 7.2067 per dollar.